One of cable’s big advantages over DirecTV Group Inc. and other satellite television services has long been technology that allows it to communicate back and forth with its customers.
That two-way communication underpins cable’s massive video-on-demand offerings and its vaunted “triple play” the ability to provide Internet access and telephone and cable services in one package.
DirecTV still can’t compete with the triple play, which has helped cable draw customers from satellite television, but the El Segundo company is finally offering video-on-demand with its own, homegrown technology.
DirecTV has been rolling out its “DirecTV On Demand” service that offers more than 4,000 movies and TV shows that can be viewed anytime, without having to wait for a scheduled start time or the need to record the program on TiVo-like digital video recorders.
But there’s a catch.
Customers have to have Internet broadband service in order to receive the content something satellite TV does not offer.
DirecTV partners with broadband providers such as Verizon Communications Inc. to sell Internet broadband. The company estimates that about half of its nearly 17 million subscribers have high-speed Internet connections.
But even that’s not enough. Regular subscribers have to upgrade to a special set-top box in order to make the video-on-demand service work.
DirecTV won’t say how many people have the latest on-demand boxes, but consultant Bruce Leichtman believes that it’s less than 1 percent of its national subscriber base.
“The key to DirecTV’s success is what percentage of their subscribers will actually have those set-top boxes installed and working in their homes over the next few years,” said Leichtman, president of Leichtman Research Group, a Durham, N.H.-based Internet and media consultancy.
Cable industry giants such as Comcast Corp., Time Warner and Cox Communications have a huge head start with on-demand technology.
Cable leader Comcast Corp., with 24 million subscribers, offers more than 10,000 movies and shows on-demand. And even when current or new DirecTV subscribers upgrade to the on-demand technology, there’s the issue of what’s available to watch.
Research has shown that some of the most popular on-demand programming are shows like HBOs “Sopranos,” “Sex and the City” and Showtime Network’s “Weeds.” DirecTV’s new on-demand service does not yet offer HBO programming, but it does carry Showtime and a variety of premium sports, event and adult programming.
However, DirecTV is betting that its new service will be a hit, even if it has limitations.
One of the major problems with on-demand technology has been its hard to navigate on-screen menus and its lack of remote access via Internet and mobile devices.
DirecTV guides can be accessed via a TV’s remote control, through its Web page or through a mobile phone, giving it an advantage over most cable services.
“We have spent a lot of time and energy designing and testing out our on-demand menus so that they are the most simple to use,” said Michelle Vagnati, a DirecTV on-demand producer.
Surprising resilience
Despite cable’s advantage in offering television, telephone and Internet access in one easy package, DirecTV and other satellite providers have been surprisingly resilient.
DirecTV gained 275,000 subscribers last year, ending with 16.8 million homes. That made it the No. 2 provider of pay television services nationwide. At the same time, publicly traded cable operators lost about 500,000 subscribers.
DirecTV’s ability to enlarge its subscriber base has been widely attributed to its so far unequaled and vast offerings of high definition channels nearly 100 HD networks at last count in major markets. It’s also virtually given away digital video recorders so subscribers can record their favorite program for viewing at a later time.
Still, DirecTV has lots of challenges, including a high churn rate of subscribers. The challenges were not lost on Rupert Murdoch, who after gaining a controlling stake in DirecTV in 2003 unloaded that stake in December 2006 to cable titan John Malone. It was part of a deal that ended a possible hostile takeover of Murdoch’s News Corp. by Liberty Media, which Malone founded and chairs.
Indeed, just last month at Liberty’s annual meeting in Denver, Liberty Chief Executive Greg Maffei told shareholders that he still viewed the “triple play” as a threat and was worried about DirecTV not having its own broadband service.
And there is a new threat: Consumers are viewing more and more movies and TV shows online.
“Both cable and satellite companies have been pressured to step up on-demand content, or risk losing viewers to the online distributors like Hulu and iTunes,” said James McQuivey, an analyst at Forrester Research.
Indeed, both cable and satellite companies have a long way to go toward educating subscribers on the advantage of video on demand.
A recent Forrester survey showed that 31 percent of consumers had never even heard of on-demand and 22 percent had seen it but never used it themselves. Another 16 percent said that they knew what it was but had never seen it. Only 15 percent had used on-demand at least once.
